The Indian telecommunications industry is one of the fastest growing in the world.
According to
the Telecom Regulatory Authority of India (TRAI), the number of telephone subscriber base in
the country reached 653.92 million as on May 31, 2010, an increase of 2.49 per cent from 638.05
million in April 2010. With this the overall tele-density (telephones per 100 people) has touched
55.38. The wireless subscriber base has increased to 617.53 million at the end of May 2010 from
601.22 million in April 2010, registering a growth of 2.71 per cent.
Value-Added Services (VAS) Market
Mobile value added services (VAS) include text or SMS, menu-based services, downloading of
music or ring tones, mobile TV, videos and sophisticated m-commerce applications. As per an
industry report, VAS that accounts for 10-12 per cent of the telecom operator's revenue is
expected to reach 20 per cent growth by 2013. The report further predicted that after the
introduction of 3G services in India, the segment may garner US$ 5.98 billion in turnover by
2013. Currently, the segment stands at US$ 2.07 billion.
Major Investments
The booming domestic telecom market has been attracting huge amounts of investment which is
likely to accelerate with the entry of new players and launch of new services. According to the
Department of Industrial Policy and Promotion (DIPP), the telecommunications sector which
includes radio paging, mobile services and basic telephone services attracted foreign direct
investment (FDI) worth US$ 2,554 million during 2009-10. The cumulative flow of FDI in the
sector during April 2000 and March 2010 is US$ 8,930.61 million.
Further, the Indian telecom sector is expected to witness investment of around US$ 40 billion
during the current fiscal, as per the Telecom Equipment and Services Export Promotion Council.
With the development of 3G, expansion of the current networks and widening of Broadband
Wireless Access (BSA) network, the investment in the sector is likely to increase from the US$
20 billion witnessed last year.
As per an industry report the telecom industry witnessed merger and acquisition (M&A) deals
worth US$ 22.73 billion during April-June 2010, which represented 67.19 per cent of the total
valuation of the deals across all the sectors during the period analysed. The sector had seen
M&A deals of around US$ 439.4 million during April-June 2009. The biggest M&A deal in the
sector was made by Anil Ambani's Reliance Communication Ltd that merged GTL infrastructure
Ltd, its telecom tower business, for US$ 11 billion. Other major M&A deals included acquiring
of Kuwait-based Zain telecom's African business for US$ 10.7 billion by Bharti Airtel and
acquisition of Infotel broadband for US$ 1032.26 million by Reliance Industries.
Norway-based telecom operator Telenor has bought a further 7 per cent in Unitech Wireless for a
little over US$ 431.3 million. Telenor now has 67.25 per cent hold of the company. Telenor has
now completed its four-stage stake buy and has invested a total of US$ 1.32 billion in Unitech
Wireless as agreed on with the latter last year.
The government has approved the foreign direct investment (FDI) proposal of the Federal
Agency for State Property Management of the Russian Federation to buy 20 per cent stake in
telecom service provider Sistema-Shyam for US$ 660.1 million.
Going Global
In March 2010, Bharti Airtel bought the African operations of Kuwait-based Zain Telecom for
US$ 10.7 billion, driving the Indian player into the league of top ten telecom players globally.
The Reserve Bank has liberalised the investment norms for Indian telecom companies by
allowing them to invest in international submarine cable consortia through the automatic route.
In April 2010, RBI issued a notification stating "As a measure of further liberalisation, it has
now been decided... to allow Indian companies to participate in a consortium with other
international operators to construct and maintain submarine cable systems on co-ownership basis
under the automatic route." The notification further added, "Accordingly, banks may allow
remittances by Indian companies for overseas direct investment."
Tele-medicine
With increase in cellphone users to around 600 million and introduction of 3G services soon in
the country, remote treatment and diagnosis of patients through mobile phones would become a
reality in the near future. In fact, a few telecom operators and value-added service developers are
planning to use mobile phones for diagnostic and treatment support, remote disease monitoring,
health awareness and communication.
3G Services
The Department of Telecom has taken the pioneering decision of launching of 3G services by
BSNL and MTNL and initiation of process for auction of spectrum for 3G services to private
operators. Allocation of spectrum for third-generation (3G) and broadband wireless access
(BWA) services was done through a controlled simultaneous, ascending e-auction process.
All the 71 blocks that were put up for auction across the 22 service areas in the country were
sold, leaving no unsold lots. Auction for 3G spectrum ended on May 19, 2010 after 183 rounds
of intense bidding over a span of 34 days. The Government is expected to morph revenue worth
US$ 14.6 billion. All the available slots across 22 circles have been sold to seven different
operators.
A pan-India bid for third generation spectrum stood at US$ 3.6 billion. The Anil Ambani-led
Reliance Communication bagged the highest number of 13 circles at a cost of US$ 1.9 billion,
followed by Bharti Airtel in 12, Idea in 11 and Vodafone and the Tatas in nine circles each,
according to the Department of Telecommunications.
MTNL and BSNL will have to pay US$ 1.42 billion and US$ 2.2 billion respectively.
It is expected that the Government of India would allot 3G spectrum on September 1, 2010 to
successful bidders. Letter of intent (LoI) has already been allotted to the 3G winners by the
Department of Telecommunications (DoT), said Telecom Secretary P J Thomas.
Manufacturing
The Indian telecom industry manufactures a vast range of telecom equipment using state-of-the-
art technology.
According to the Economic Survey 2009-10, the production of telecom equipment in value terms
has increased from US$ 9 billion in 2007-08 to US$ 10.53 billion in 2008-09 and is expected to
be US$ 12.4 billion in 2009-10.
Exports have increased from US$ 86.74 million in 2002-03 to US$ 23.7 billion in 2008-09,
accounting for 21 per cent of the equipment produced in the country.
Further, the Indian mobile companies also strengthened their market position with the launch of
various handsets in the country in 2009-10, as per the annual survey conducted by Voice & Data.
As per the survey, the Indian mobile phone brands registered a significant growth garnering
nearly 14 per cent market share. Indian brand Micromax led the pack with 4.1 per cent share,
followed by karbonn with 3 per cent and Spice with 3.9 per cent. However, Nokia is still the
market leader with 52.2 per cent market share.
Telecommunication equipment major Nokia Siemens is planning to source components worth
US$ 28.5 billion from India in 2010-11. In 2009, the company sourced components worth US$
20 billion from India.
According to a report by technology researcher Gartner Inc, India ranks fourth in manufacturing
telecom equipment in the Asia-Pacific (Apac) region. The country has a 5.7 per cent share of the
region's total telecom equipment production revenue of US$ 180 billion in 2009.
"We expect India to move up to the third spot (after China and South Korea) with a share of 8.5
per cent of the total (estimated) Apac telecom equipment production revenue of US$ 277 billion
by 2014," Gartner said. The firm estimates India's telecom equipment production revenue to
grow at a CAGR of 17.1 per cent to reach US$ 22.6 billion in fiscal 2014. India will be the
fastest growing telecom equipment production market in the Apac region over the next five
years, it predicts.
Rural Telephony
According to the Economic Survey 2009-10, rural tele-density has increased from 1.2 per cent in
March 2002 to 15.1 per cent in March 2009 and further to 21.2 per cent at the end of December
2009.
Rural telephone connections have gone up from 12.3 million in March 2004 to 123.5 million in
March 2009 and further to 174.6 million in December 2009. The share of private sector players
in the total telephone connections has steadily increased from around 14 per cent in 2005 to 31
per cent as on December 31, 2009. During 2008-09, the growth rate of rural telephones was 61.5
per cent as against 36.7 per cent for urban telephones. The private sector has contributed
significantly to the growth of rural telephony by providing 81.5 per cent of the rural phones as on
December 31, 2009.
Telecommunications
Last Updated: July 2010
It is proposed to achieve rural tele-density of 25 per cent by means of 200 million rural
connections by the end of the Eleventh Five Year Plan.
The government plans to connect all revenue villages in India either through landline, mobile or
WLL by February 2011. “We have already connected about 96 per cent of the revenue villages.
The remaining 25,000 villages will have connectivity by February 2011,” stated Mr Sachin Pilot,
Minister of State for Communications and IT. The government further proposes to provide
broadband connectivity to all the panchayats in the country by 2012.
Policy Initiatives
The government has taken many proactive initiatives to facilitate the rapid growth of the Indian
telecom industry.
In the area of telecom equipment manufacturing and provision of IT-enabled services,
100 per cent FDI is permitted
No cap on the number of access providers in any service area. In 2008, 122 new Unified
Access Service (UAS) licences were granted to 17 companies in 22 services areas of the
country
Revised subscriber based criteria for allocation of Global System of Mobile
Communication (GSM) and Code Division Multiple Access (CDMA) spectra were issued
in January 2008
To provide infrastructure support for mobile services a scheme has been launched to
provide support for setting up and managing 7,436 infrastructure sites spread over 500
districts in 27 states. As on December 31, 2009, about 6,956 towers had been set up under
the scheme
According to the Consolidated Foreign Direct Investment (FDI) Policy document, the FDI limit
in telecom services is 74 per cent subject to the following conditions:
This is applicable in case of Basic, Cellular, Unified Access Services, National/
International Long Distance, V-Sat, Public Mobile Radio Trunked Services (PMRTS),
Global Mobile Personal Communications Services (GMPCS) and other value added
Services
Both direct and indirect foreign investment in the licensee company shall be counted for
the purpose of FDI ceiling. Foreign Investment shall include investment by Foreign
Institutional Investors (FIIs), Non-resident Indians (NRIs), Foreign Currency Convertible
Bonds (FCCBs), American Depository Receipts (ADRs), Global Depository Receipts
(GDRs) and convertible preference shares held by foreign entity. In any case, the 'Indian'
shareholding will not be less than 26 per cent
FDI up to 49 per cent is on the automatic route and beyond that on the government route.
FDI in the licensee company/Indian promoters/investment companies including their
holding companies shall require approval of the Foreign Investment Promotion Board
(FIPB) if it has a bearing on the overall ceiling of 74 per cent. While approving the
investment proposals, FIPB shall take note that investment is not coming from countries
of concern and/or unfriendly entities
The investment approval by FIPB shall envisage the conditionality that the Company
would adhere to licence Agreement
FDI shall be subject to laws of India and not the laws of the foreign country/countries
The Road Ahead
According to a report published by Gartner Inc in June 2009, the total mobile services revenue in
India is projected to grow at a compound annual growth rate (CAGR) of 12.5 per cent from
2009-2013 to exceed US$ 30 billion. The India mobile subscriber base is set to exceed 771
million connections by 2013, growing at a CAGR of 14.3 per cent in the same period from 452
million in 2009. This growth is poised to continue through the forecast period, and India is
expected to remain the world's second largest wireless market after China in terms of mobile
connections.
"The Indian mobile industry has now moved out of its hyper growth mode, but it will continue to
grow at double-digit rates for next three years as operators focus on rural parts of the country,"
said Madhusudan Gupta, senior research analyst at Gartner. "Growth will also be triggered by
increased adoption of value-added services, which are relevant to both rural and urban markets."
Mobile market penetration is projected to increase from 38.7 per cent in 2009 to 63.5 per cent in
2013, according to Gartner.